Car Insurers Lose Traction Despite Deluge of Advertising

Flo, the charismatic Progressive pitchwoman. The endearing, geeky gekko from Geico. The ersatz college professor from Farmers Insurance's "university." The cloying pitchman for Nationwide. State Farm and its continual cast of celebrities, lately including the magician David Copperfield. The intonations of hip actor John Krasinski voice-overing TV ads for Esurance.

After a multi-year explosion in advertising and other outreaches by these brands, practically every American is now familiar with them and their product: auto insurance. The bad news for the brands is that fewer consumers are motivated by insurers' blandishments these days. The companies are pouring billions of dollars into marketing in attempts to carve out, or protect, scintillas of market share, but these huge investments no longer are moving the needle very much.

"The industry spent $5.7 billion on advertising and allowances in 2011, but we didn't see a commensurate increase in [market] churn," said Jeremy Bowler, senior director of the insurance practice for J.D. Power & Associates. In 2006, he said, the industry spent only $3.3 billion.

As winners, Progressive and Geico, which is owned by Berkshire Hathaway, are the main exceptions. "They have been growing vigorously in a mature market," Bowler told me. "And because the whole industry isn't growing, they're stealing competitors' customers in order to grow."

For all the other car-insurance brands, the good news is that they generally are doing a better job of holding on to customers at a time when all their competitors are trying to claw them from their bosom. Meanwhile, noticeably, auto-insurance brands have been changing up their pitches to consumers so that they don't just keep hitting the redundant note of price appeal.

Industry-wide, advertising expenditures increased by 12 percent in 2011 compared with 2010, Power said. But the auto-insurance shopping rate reached the lowest level in the last five years, with only 25 percent of insurance customers indicating they shopped for a new insurer in the past 12 months, down 8 percentage points from 2011, according to Power's new insurance-shopping study.

Theoretically, every car-insurance policy holder could switch carriers a couple of times a year, because most policies have six-month terms. But after a few years in which every other advertisement on TV seemed to be for an Esurance or a State Farm promising hundreds of dollars in premium savings for a consumer who switched, their appeals are finding a less receptive audience.

"Someone who shopped repeatedly [for car insurance] in 2009 and 2010 probably squeezed all the value out of that exercise that they're going to get," explained Bowler of the Westlake Village, Calif.-based provider of marketing information. "They could shop again but they're not going to find that $400 savings again, on average. These serial shoppers couldn't find the savings they found in 2010 so they gave up searching in 2011.

"The economic turmoil stimulated a spike in shopping that grew, and then the [premium] savings ebbed away for those repeat shoppers, so they sort of exited the market," he said.

The bright spot for auto insurers is that, of that one-fourth of auto-insurance customers who shopped for a new policy last year, 43 percent of them went ahead and switched providers -- the highest rate since the study first began measuring retention in 2008, and an increase of 3 percentage points from 2011, Power said. There is always a huge cohort of Americans sort of naturally seeking to change or upgrade their car insurance because of changes in life circumstances such as landing a job or getting married.